The intensifying conflict between the United States and China is not only evident in the political and social spheres but also in the realm of semiconductors, the microscopic wafers of silicon that power a vast array of technology. With the global semiconductor industry valued at over $580 billion, it plays a crucial role in the global economy. However, the concern arises from the fact that more than 90% of the world’s semiconductors are produced in Taiwan, a potential flashpoint for a future conflict.
Reliance on Taiwan for Semiconductors
China recognises the vulnerability of relying heavily on Taiwan for semiconductors and seeks to enhance its own advanced semiconductor capacity. This serves the dual purpose of bolstering economic resilience and strengthening its military preparedness. In response, the US is employing trade measures to undermine China’s semiconductor ambitions.
China’s semiconductor industry has witnessed substantial growth, but it remains largely focused on producing larger and less technologically advanced chips, while the cutting-edge chips are typically five nanometers or smaller. China’s goal of achieving 70% self-sufficiency in semiconductors by 2025 seems distant, as it lags behind in technological progress.
The Biden administration has imposed stringent restrictions, including measures to cut off China’s access to chips made with US technology worldwide. Collaborative efforts between the US, Japan, and the Netherlands further limit the export of advanced chip-making technology to China. These measures have already resulted in a decline in China’s chip imports.
In response to the challenges, Beijing plans to allocate a significant support package worth 1 trillion yuan (£117 billion/$146 billion) to the semiconductor industry, including tax breaks and subsidies. The focus will be on supporting critical supply chain vulnerabilities. Additionally, China’s cybersecurity watchdog recently raised concerns about US chip manufacturer Micron, hinting at potential penalties.
Despite the financial support, China’s semiconductor industry faces significant obstacles. It trails behind Taiwan Semiconductor Manufacturing Company and Western rivals like ASML in terms of technological advancements. Chinese manufacturers allocate a smaller share of sales to research and development compared to their US counterparts. The industry also grapples with fraudulent operations seeking government subsidies. To combat this, the Chinese government revoked the licenses of thousands of chip companies.
To achieve success, Chinese companies must not only invest in equipment and chemicals but also develop the necessary expertise and experience to scale production efficiently. Extensive research and development efforts are vital to bridge the gap and catch up with industry leaders.
The battle for semiconductors reflects the wider US-China conflict, impacting the global supply chain and posing challenges to both economic stability and national security. The outcome will shape the future landscape of technology and geopolitics.
Reference: Indian Express
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